Bad Loans, NPAs and the IBC
Section 29A and Promoters' Role
IBC bars wilful defaulters and certain promoters from bidding for their own companies, to stop them regaining assets cheaply.
Preventing round-tripping.
Rule
Defaulting promoters cannot bid for their company without clearing dues.
Reason
Otherwise, they might buy back assets at a steep discount after defaulting.
Controversy
Some argue it excludes competent bidders, but courts have upheld it.
Wilful defaulters
Borrowers who can pay but do not face additional consequences.
A blocked bid
A promoter who defaulted is barred from submitting a resolution plan.
Ignoring moral hazard
Rules must discourage strategic default.
Key takeaways
- 29A bars defaulting promoters.
- It prevents cheap buybacks.
- Courts upheld it.
- Wilful defaulters face penalties.
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